2015 (9) TMI 1559 - AT - Income Tax

Appellate Tribunal rules in favor of HUF, distinguishing between capital gains and business income

The Appellate Tribunal allowed the appeal by a Hindu Undivided Family (HUF) challenging the order treating Short Term Capital gain from shares and mutual ... Gain earned on investments in shares and mutual funds - capital gain or business income - magnitude of transaction - Held that:- The assessment for A.Y. 2004-05, 2005- 06, 2006-07 and 2009-10 have been made u/s. 143(3) of the Act. In all these scrutiny assessments, we find that the assessee’s main source of income is from speculation income, Short Term Capital gains and income from other sources. Rule of consistency says that on same set of facts, the Revenue authorities should not take a different view. There has to be uniformity in treatment and consistency when the facts and circumstances are identical particularly in the case of the assessee. Our view is fortified by the decision of the Hon’ble Bomby High Court in the case of Gopal Purohit (2010 (1) TMI 7 - BOMBAY HIGH COURT ). We also find that the findings of the Ld. CIT(A) is heavily based on the fact that the assessee is indulged in intra-day trading of shares. We find that the assessee has shown the same as business income. Therefore, there is no merit in the findings of Ld. CIT(A). Respectfully following the above , we set aside the findings of the Ld. CIT(A) and direct the AO to treat the Short term Capital Gain as Short term capital gain. - Decided in favour of assessee. Issues:1. Treatment of Short Term Capital gain as business income.Analysis:The appellant, a Hindu Undivided Family (HUF), challenged the order of the Ld. CIT(A) regarding the treatment of Short Term Capital gain earned on investments in shares and mutual funds as business income for the Assessment year 2008-09. The Assessing Officer (AO) observed that the appellant had shown income from speculation, capital gains, and income from other sources. The AO, after considering the facts, concluded that the appellant was actively engaged in the business of share trading and speculation, hence treating the Short Term Capital gain as business income.During the appeal before the Ld. CIT(A), the appellant reiterated that the investments were made out of own funds and claimed to be an investor. The appellant cited previous and subsequent assessment years where capital gains from the sale of shares were accepted by the department. The Ld. CIT(A), however, upheld the assessment order based on the appellant's heavy engagement in intra-day trading of shares.Upon careful consideration, the Appellate Tribunal noted the debatable nature of whether income from the sale and purchase of shares should be treated as capital gain or business income. Referring to relevant legal precedents, including the decision of the Hon'ble Bombay High Court in CIT Vs Gopal Purohit, the Tribunal emphasized the distinction between investment and trading portfolios. The Tribunal highlighted that high frequency transactions alone do not signify trading activities, as investors may adjust their portfolios based on market conditions.The Tribunal observed that the Revenue authorities should maintain consistency in their treatment of taxpayers when facts and circumstances remain the same. Relying on previous assessments and the decision in the case of Gopal Purohit, the Tribunal concluded that the appellant's Short Term Capital gain should be treated as such, rejecting the Ld. CIT(A)'s findings based on intra-day trading activities. Consequently, the appeal by the appellant was allowed, directing the AO to treat the Short Term Capital Gain as such.In conclusion, the Tribunal's decision emphasized the importance of assessing each case based on its factual situation, recognizing the distinction between investment and trading activities in shares. The judgment underscored the need for consistency in tax assessments and upheld the appellant's claim for treating Short Term Capital gain as capital gain rather than business income.